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Facts
The Revenue filed an appeal against the order of the CIT(A) who deleted an addition of Rs. 2,50,00,000/- made by the Assessing Officer on account of unexplained cash credit under section 68 of the Income Tax Act. The assessee had received unsecured loans from M/s RNG Finlease Pvt. Ltd.
Held
The Tribunal noted that the assessee had provided substantial evidence, including bank statements, confirmation letters, and proof of interest payment with TDS, to establish the genuineness, identity, and creditworthiness of the lender. The CIT(A) had also deleted the addition, finding that the assessee had discharged its onus.
Key Issues
Whether the unsecured loans received by the assessee from M/s RNG Finlease Pvt. Ltd. constituted unexplained cash credits under Section 68 of the Income Tax Act.
Sections Cited
68, 143(3), 147, 148, 142(1)
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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI. & DINESH MOHAN SINHA
आदेश / O R D E R Per, Dr. A. L. Saini, AM Captioned appeal filed by the Revenue, pertaining to assessment year 2011-12, is directed against the order passed by the Learned Commissioner of Income Tax (Appeal), [in short ‘Ld. CIT(A)’], dated 28.06.2024, which in turn arises out of an assessment order passed by the assessing officer ( CPC-assessing officer) under section 143(3) r.w.s. 147of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), vide order dated 23.08.2016.
Grounds of appeal raised by the Revenue are as follows:
1. “1. The learned CIT(A) has erred in law on facts in deleting the addition of Rs. 2,50,00,000/-, on account of unexplained cash credit u/s 68 of the Act.
2. It is, therefore, prayed that the order of the Id. CIT(A) be set aside and that of the A.O, be restored to the above extent.
3. Any other ground that the Revenue may rise before or during the proceedings before the Hon'ble ITAT.”
3. Succinctly, the factual panorama of the case is that assessee before us is a private limited company, and has e-filed return of income for the assessment year(A.Y.) 2011-12, on 29/09/2011 and declared net taxable income of Rs. 3,16,50,460/-. The assessee`s case was selected regular for scrutiny accordingly statutory notice u/s 143(2) of the Act, was issued on 08.09.2012 and served upon the assessee on 10.09.2012. In order to furnish details, a notice issued u/s 142(1) of the Act has been issued and served upon the assessee. The assessment order passed u/s 143(3) of the Act, on dated 13/03/2014, with assessed income of Rs. 3,18,72,260/-. The addition of Rs. 2,21,799/-, has been added in the total return of income of the assessee, with disallowance of various personal expenses. The assessee`s case was subsequently re-opened u/s 147 of the Act, by issue of notice u/s 148 dated 24.08.2015, after obtaining statutory approval from the Joint Commissioner of Income-tax. On verification of case records, it was noticed by the assessing officer that during the previous year relevant to A.Y. 2010-11, the assessee had received an unsecured loan of Rs. 1 crore from M/s RNG Finlease Pvt. Ltd. During the course of assessment proceedings for A.Y. 2010-11, it was noticed that the said company, M/s RNG Finlease Pvt. Ltd., Kolkata was running only on paper and a shell company, being used as a conduit to launder black money in the guise of either the unsecured loans or share capital. On further verification, it was noticed that during the A.Y. 2011- 12 also the assessee has shown to have received unsecured loans of Rs. 2,50,00,000/- from the same company, M/s RNG Finlease Pvt Ltd. However,on verification of the assessment order for A.Y. 2011-12, it was noticed by the assessing officer that the said amount received from the same company, which was held as unexplained in the assessment for A.Y. 2010-11 has not been treated, as unexplained cash credit u/s 68 of the Act, while finalizing the assessment for A.Y. 2011-12. Since the loan from the said company was treated as unexplained cash credit u/s 68 of Act for the A.Y. 2010-11, the same was required to be treated as unexplained cash credit u/s 68 of the Act for A.Y. 2011-12 also. Since the amount of Rs. 2,50,00,000/- has not been added to the total income u/s 68 of the Act, the same has resulted into under assessment of income to the tune of Rs. 2,50,00,000/-.
During the assessment proceedings, as desired by the assessee, the reasons recorded u/s 148(2) of the Act, was supplied to the assessee by the assessing officer, vide letter dated 16.10.2015. The assessee has filed objection against the proposed re-assessment/issue of notice u/s 148 of the Act. The assessee was also served with a notice u/s 142(1) dated 27.06.2016.
In response to these notices, the assessee submitted reply before the assessing officer with documentary evidences on 3rd December, 2015. The assessee also submitted his reply before the assessing officer, again on 08.08.2016, which is reproduced below:
“Sub: Our pending assessment for A.Y 2011-12 Reference is invited to the notice u/s.142(1) of the Act received by us on 27.07.2016 vide your letter no. ACIT/Morhi Cir/Scrutiny/142(l)/147/30/2015-16 dated 27.06.2016 for the assessment year 2011.12. The required details are submitted herewith as under:
1. 1. Please find enclosed herewith the letter of Authority for the year under assessment.
2. Please find enclosed herewith copy of acknowledgment of return of income along with copy of return of income, copy of audit report in form 3CA for the year under assessment.
3. We are produced herewith books of accounts for the year under assessment.
4. Please find enclosed herewith ledger account along with contra ledger account and acknowledgement of return of income filed by the depositor M/s. RNG Finlease Pvt.
Ltd. in respect unsecured loan of Rs. 2,50,00,000/- received during the year under assessment. Remaining required details will be furnished…..”
During the assessment proceeding, the assessing officer has further issued show cause notice to the assessee, dated 12.08.2016, as to why the loan amount of Rs.2,50,00,000/- taken from M/s RNG Finlease, should not be treated as unexpected cash credit. In response to the above show -cause notice, the assessee furnished its reply before the assessing officer, along with documentary evidences, on dated 19.08.2016, which is reproduced below: “with reference to our above pending assessment kindly note following details: (1) Letter of Authority is furnished herewith. (2) Copy of ITR and computation on income along with Audit Report for F.Y 21013- 14 is furnished herewith. (3) Books of accounts are produced (4) We have taken unsecured loan of Rs. 2.50 Crores from RNG FinleasePvt. Ltd during the year under assessment. The details requested by you are furnished herewith. (a) We had earlier taken the unsecured loan from the said party in F.Y 2009-10 and since we needed further funds, for our business, we had taken further loan of Rs. 2.50 Crores from RNG FinleasePvt. Ltd. During the year under assessment. (b)Copy of the bank statement of RNG FinleasePvt. Ltd. wherein the said loan transaction is duly reflected is submitted. (c) The said loan was taken for the purpose of our business requirement. We have paid interest of Rs. 16,80,701/- to RNG FinleasePvt. Ltd. and TDS thereon has been duly deducted and paid. (d) The loan is fully repaid in the subsequent years (F.Y 2012-13) and there is no outstanding balance against the said loan. (e) RNG FinleasePvt. Ltd. is a non-banking finance co. registered with Reserve Bank of India. (f) Copy of balance sheet of RNG FinleasePvt. Ltd for the A.Y 2010-11, 2011-12 and 2012-13 is attached. (g) Details of the other unsecured loan given by RNG FinleasePvt. Ltd, are not available with us.. (h) RNG FinleasePvt. Ltd. is in the business of Financing activity as non banking finance company. (i) Director of our company are/were not having any interest in the RNG FinleasePvt. Ltd. (j) RNG FinleasePvt. Ltd. has given a letter explaining that since the RNG FinleasePvt. Ltd. is a non-banking finance company mainly engaged in the activity of lending money, they do not require any board resolution. The copy of the said letter is enclosed herewith. (k) Affidavit of RNG FinleasePvt. Ltd. confirming the loan given to us and its repayment is furnished herewith. (l) Copy of NBFC certificate of registration with RBI of RNG FinleasePvt. Ltd is submitted herewith. (m) Copy of contra account from the books of RNG Finlease Pvt Ltd for the F.Y. 2010-11, 2011-12 & 2012-13 are attached herewith. In view of the above the identity, genuineness and credit worthiness of the said depositor is fully explained".
However, the assessing officer rejected the contention of the assessee and observed that the assessee's argument that the creditworthiness of the assessee is proved by furnishing copy of acknowledgment of return of income and confirmation letter, and bank statement, cannot be accepted because as per the copy of confirmation letter filed by the assessee in the name of M/s. RNG Finlease Pvt. Ltd, the assessee has obtained huge unsecured loans from M/s IMG "Finlease Pvt. Ltd. Therefore, the creditworthiness to lend money to the assessee and source in the hands of the depositor has not proved. Since, as per the assessing officer the assessee has failed to prove satisfactorily the creditworthiness of the said person, the amount credited in the books of accounts have to be treated as unexplained cash credit u/s. 68 of the Act. Therefore, the unsecured loans received from the aforesaid concerns at Rs. 2,50,00,000/- was treated as unexplained cash credit u/s. 68 of the I.T. Act and added to the total income of the assessee.
8.Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before ld CIT(A), who has deleted the addition made by the Assessing Officer. The ld CIT(A) observed that during the assessment proceedings, the assessee had submitted bank statement of the depositor, therefore to say that creditworthiness remains to be proved, as assessee failed to submit bank statement, is factually wrong. Also other factors like the depositor being a RBI approved Non -Banking finance-company, Payment of interest with TDS was made and repayment of the entire amount in FY 2012-13 was done. Therefore, based on these facts, the ld CIT(A) deleted the addition.
9.Aggrieved by the order of the Ld. CIT(A), the Revenue, is in appeal before us.
10.Learned Sr. DR for the revenue, argued that assessee has failed to explain the genuineness and credit-worthiness of the transaction, just because there is transaction through banking channel, does not mean that transaction is genuine. The Ld. Sr. DR also relied on the findings of the Assessing Officer.
On the other hand, the Ld. Counsel for the assessee submitted that during the assessment proceedings, the assessee submitted bank statement, confirmation, and evidence to the effect that TDS has been deducted on the interest. Besides, the loan has been repaid in subsequent year. The Ld. Counsel of the assessee, also relied on the findings of the Ld. CIT(A).
We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that Audited Financial Statements of RNG Finlease Pvt Ltd for assessment year (AY) 2011- 12 and AY 2012-13 were submitted by assessee (vide Pages 27 to 84 of Paper Book). We note that amount of loan advance to the assessee, is quite insignificant looking to the Share capital and reserves of the depositor and the depositor have very good liquidity in the form of bank balance. This fact is evident from the analysis of Audited Financial Statement for A.Y. 2011-12, which is reproduced below:
Particulars Amount (Rs) in lacs Share Capital 333.05 Reserves & Surplus 2731.56
Net Owned Funds 3064.61 Cash & Bank Balance 37.71 Loan Given to Appellant 250.00 We note that the transaction has been carried through proper banking channel and duly reflected in the accounts of depositor as well as assessee. There is no corresponding cash deposit just prior to advancing of loan. The loan has been subsequently repaid through banking channel only. Interest is paid on the deposit and TDS has been deducted on such interest payment. The assessing officer has not disallowed interest paid to the said depositor, considering these facts and evidences, we find that assessee fully discharged his onus to prove identity, creditworthiness, and genuineness of the transaction.
We note that the assessing officer has stated in para 11 of the assessment order that the assessee did not produce copies of bank statements of these concerns reflecting the transactions made with the assessee, which is factually, wrong.However in para 10(b) of the assessment order assessing officer has reproduced the list of submissions made by the assessee. Para 10 (b) specifically mentions, as follows:
"(b) Copy of bank statement of RNG Finlease Pvt. Ltd. wherein the said loan transaction is duly reflected is submitted." Therefore, assessee has submitted Copy of bank statement of RNG Finlease Pvt Ltd. However in Para 11 of the assessment order assessing officer goes on to say that copy of bank statement was not produced, which is contrary to the facts.In view of the above, the ld CIT(A) noted that it is clear that during assessment proceedings, the assessee had submitted bank statement of the depositor. Therefore, to say that creditworthiness remains to be proven, as assessee failed to submit bank statement, is factually wrong.
14.The ld. CIT(A) also noticed that the depositor is a RBI approved, Non Banking finance Company and Interest was paid, and TDS on interest was also deducted, moreover, the entire amount was repaid in the financial year (FY)
2012-13.We note that, hon’ble jurisdictional High Court of Gujarat in the case of Ayachi Chandrashekhar Narsangji, [2014] 42 taxmann.com 251 (Gujarat), held that where department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit
During the appellate proceedings, before the learned, CIT(A), the assessee has stated that a similar issue had arisen in its own case with the same party, that is, RNG Finlease Pvt Ltd for A.Y.2010-11. In the said order, the assessing officer had made addition considering the deposit as unexplained from the same depositor on the ground of Kolkata Channel of money laundering. The assessee had preferred an appeal before the Hon'ble CIT(A)-1, Rajkot against order for A.Y. 2010-11. The Hon'ble CIT(A) has deleted the entire addition vide order No. CIT(A0-I/Rjt/0044/13-14 dated 28.08.2014. In the said order the CIT(A) has held as under.
"6.7 I have carefully considered the assessee's contention, the details filed and the assessment order. It is observed that the main plank on which the A.O. has based his addition is the non- production of the depositors before him leading to non-verification of the genuineness, capacity and identity. The A.O. has also observed that the assessee has not offered any security for the unsecured loan. Also, the assessee did not know the persons managing the affairs of the company. The A.O, therefore held that the assessee is hand in glove with the depositors and has converted his black money in the guise of unsecured loans using the 'Kolkata channel. The A.O. has relied upon the test of human probabilities as given by the Hon'ble Supreme Court in the case of SumatiDayal (supra). On the other hand, the assessee has submitted all the details filed before the A.O. as required except for personal appearance by the promoters. Before proceeding further, it would be worthwhile to know the details that have been filed by the assessee in respect of the depositors. They are:-
1. 1. Memorandum of Association, certificate of incorporation issued by ROC in respect of RNG Finlease P. Ltd.
2. Form No. 23AC as filed before Ministry of corporate Affairs.
3. PAN 4. Copy of bank statement of depositors showing the said transaction.
5. Details of interest paid to the depositors and tax deducted on the interest paid.
6. Ledger account of the assessee in the books of the depositor. 7. Contra confirmation from the depositors duly stamped and signed. 8. Details of repayment of loan in subsequent years.
Copy of ITR acknowledgement of the depositor.
Copy of audited accounts of the depositors wherein the loan to the assessee has been duly reflected in the balance sheet.
11. Details showing net worth of each individual from their audited financial statement which shows that the loan advanced to the assessee constitutes a very small fraction of net worth. 12. Duly sworn in affidavit by the managing director of RNG Finlease P. Ltd. Shri Amitkumar Dhandhania, confirming the transaction.6.9 The law about cash credits has been very well discussed and established by various judicial authorities. In respect of the cash credit u/s. 68, the primary onus lies on the assessee to prove the identity of the depositors, its capacity to advance the money and the genuineness of the transaction. In the present case, as the promoters were not produced before him, the A.O. held that the onus has not been properly discharged by assessee. I have carefully examined the details filed by the assessee. It is seen that the identity of the depositor is established by virtue of the ROC certificate, PAN, ITR and bank account. It is also pertinent to mention that the depositor has submitted a sworn in affidavit of managing director of RNG Finlease P. Ltd. confirming the transaction. As regards the capacity of the depositors, the assessee has filed details of paid up share capital, reserves surpluses and net worth of and the loan advanced is 3.26% of net worth of depositor. The details of cash and bank balances have also been filed. The only issue now requires to be analysed is about the genuineness of the transaction. The transaction has been carried out through banking channel and properly reflected in both the accounts, there are no corresponding cash deposits just prior to advancing of loan by the depositor, tax has been deducted on the interest paid by the assessee and the loan has been subsequently repaid back again through banking channel. The inescapable conclusion therefore is that the transaction is genuine. The A.O. has raised a point regarding the transaction being through 'Kolkata route' whereby black money has been converted into white money under the guise of deposits. Merely because the deposits are from Kolkata, the A.O. cannot reach to this conclusion. The A.O. should have gone further and investigated about the money coming into the bank account of the depositors. The A.Ο. had to conclusively prove that the assessee had given cash or there was cash deposit in the bank account of the depositor or cash deposits in other accounts from which money has been flown to the depositors and then to the assessee. The A.O. has not done anything to this effect and has stopped only at the first level. The A.O's inference is solely based on the non- production of the depositors, the statement of Shri Makadia conveying ignorance about the person in charge of the depositor company and lack of any security by the assessee. As regards the production of the promoters before the A.O, the assessing officer could have easily issued commission uls. 131(1)(d) as the promoters were stationed beyond 500 km. This has not been done by the assessing officer. As against that, the assessee has given complete details running into 14 points which have been narrated earlier. Also, the depositors themselves have confirmed the transactions by independently filing a sworn in affidavit of managing director of RNG Finlease P. Ltd The onus therefore, in my opinion, has been properly discharged by the assessee. It would also be worthwhile to mention here that the Kolkata route referred to by the A.O. is generally operative in respect of share application money or purchase of loss. Be that as it may, even if such loan is by the Kolkata route, it is for the A.O. to conclusively prove the same. This has not been done by the A.O. considering the factual matrix and the discussion as above, it is held that no addition u/s. 68 is warranted. The addition is directed to be deleted. This ground of appeal is allowed"
Therefore, considering the above factual position, the learned, CIT(A) deleted the addition. We have gone through the above findings of the learned CIT(A), along with documentary evidences and noticed that there is no infirmity in the conclusion reached by the learned CIT(A).That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
In the result, appeal filed by the revenue is dismissed.
Order is pronounced on 12/06/2025 in the open court.